G.R. No. 187769, June 4, 2014
ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

FACTS

Petitioner Alvin Patrimonio and respondent Napoleon Gutierrez were business partners in Slam Dunk Corporation. In the course of business, Patrimonio pre-signed several blank checks (lacking payee, date, and amount) and entrusted them to Gutierrez with the specific instruction not to fill them out without prior notification and approval. In February 1994, without Patrimonio’s knowledge or consent, Gutierrez approached respondent Octavio Marasigan (Patrimonio’s former teammate) to secure a loan of ₱200,000.00, falsely claiming Patrimonio needed it for house construction. Gutierrez promised a 5% monthly interest. Marasigan agreed and gave the money. Gutierrez then delivered one of the pre-signed checks, filled out with “Cash” as payee, “Two Hundred Thousand Pesos Only,” the amount “₱200,000.00,” and the date “May 23, 1994.” When deposited on May 24, 1994, the check was dishonored due to “ACCOUNT CLOSED” (the account had been closed since May 28, 1993). Marasigan’s demands for payment from Patrimonio were unheeded, leading to a criminal case for violation of B.P. 22. Patrimonio filed a Complaint for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and Marasigan. The Regional Trial Court (RTC) dismissed the complaint and ordered Patrimonio to pay Marasigan ₱200,000.00, declaring Marasigan a holder in due course. The Court of Appeals (CA) affirmed the dismissal but on different grounds, finding Marasigan was not a holder in due course due to lack of good faith, yet still held Patrimonio liable.
ISSUES:
1. Whether the contract of loan for ₱200,000.00 granted by Marasigan to Patrimonio, through Gutierrez, may be nullified for being void.
2. Whether there is basis to hold Patrimonio liable for the payment of the ₱200,000.00 loan.
3. Whether Gutierrez completely filled out the subject check strictly under the authority given by Patrimonio.
4. Whether Marasigan is a holder in due course.

RULING

The Supreme Court GRANTED the petition, ANNULLED and SET ASIDE the CA Decision and Resolution.
1. On the nullity of the loan contract: The contract of loan is void. For a contract to exist, consent of the contracting parties is essential. Patrimonio never authorized Gutierrez to obtain a loan on his behalf. While a contract of agency may generally be oral, Article 1878(7) of the Civil Code requires a special power of attorney to loan or borrow money. This requirement refers to the nature of the authorization (it must be express) but not its form (it may be oral or written). However, no such express authority was proven. Gutierrez acted without any authority, and Patrimonio never ratified the act. Therefore, no contract of loan between Patrimonio and Marasigan was created.
2. On Patrimonio’s liability for the loan: Patrimonio is not liable for the loan amount. Since Gutierrez had no authority to contract the loan, Patrimonio is not a party to the loan agreement and incurs no obligation from it. His liability, if any, must stem from the check itself, not from the loan.
3. On whether the check was filled strictly under authority: Gutierrez did not fill out the check strictly in accordance with Patrimonio’s authority. The authority given was to fill out the checks only with prior notification and approval for Slam Dunk business expenses. Gutierrez violated this by filling out the check for an unauthorized personal loan. Under Section 14 of the Negotiable Instruments Law, when an instrument is delivered incomplete, the holder has prima facie authority to complete it, but only in accordance with the authority given. Completion outside that authority is a personal defense against a holder not in due course.
4. On whether Marasigan is a holder in due course: Marasigan is not a holder in due course. A holder in due course must take the instrument in good faith, without notice of any defect. The circumstances—Gutierrez’s request for a loan on behalf of Patrimonio without any written authority, the high 5% monthly interest, and the delivery of a check already filled with “Cash” as payee and a future date—should have prompted Marasigan, who had a close relationship with Patrimonio, to verify the authority. His failure to do so indicates lack of good faith. As a holder not in due course, he is subject to the personal defense that the check was completed outside the authority given.
Since Marasigan is not a holder in due course, Patrimonio can raise the personal defense of unauthorized completion. Consequently, Patrimonio has no obligation to pay Marasigan the face value of the check. The real loan transaction was between Gutierrez and Marasigan.